General Certificate of Education Ordinary Level

2281 Economics June 2011

Principal Examiner Report for Teachers
2011
ECONOMICS


Paper 2281/11
Multiple Choice


Question
Number
Key
Question
Number
Key
1 C 21 A
2 A 22 A
3 D 23 D
4 A 24 A
5 C 25 D

6 A 26 C
7 B 27 D
8 A 28 B
9 B 29 B
10 C 30 B

11 A 31 B
12 C 32 B
13 D 33 D
14 B 34 A
15 D 35 C

16 D 36 D
17 D 37 C
18 C 38 B
19 D 39 D
20 D 40 B


The mean mark was 25.1 which compares favourably with the mean of 23.9 last year.

The questions for which most candidates selected the correct answer were 1, 4, 15, 16, 18, 19, 25, 26, 36
and 37. These questions were answered correctly by 80% or more of the candidates. They covered
different parts of the syllabus and were set to test different skills.

The questions for which the fewest candidates selected the correct answer were 10, 13, 14, 20 and 22.
These questions were answered correctly by 40% or fewer candidates.

Question 10 asked candidates to select an example of a market failure. The correct answer was option C.
Option B was a popular choice for some candidates, but the existence of scarcity does not indicate that the
market has not worked. Price, demand and output produced can be determined by a market even though a
particular good is scarce. The general existence of scarcity is part of the basic economic problem and is not
an indication of a market failure.



1
General Certificate of Education Ordinary Level
2281 Economics June 2011
Principal Examiner Report for Teachers
2011
Question 13 asked what type of share a person might buy in order to gain a long-term profit with as little risk
of short-term loss as possible. The correct answer was option D. Supermarkets are likely to face increased
demand as population, and possibly incomes, increase and are likely not to face much risk in the short run
as they stock necessary food items. Some candidates chose options A and C. Option A, however, could well
present high risk in the short run if the coffee crop failed due to a poor harvest. Option C might well not
enable a long-term profit as high-tech electronics and gadgets are likely to be superseded in the long run by
new innovations.

Question 14 asked candidates about banks. The correct answer was option B. Commercial banks do not
hold the financial accounts of the government, central banks do not determine government spending policies
nor do they supply foreign currency directly to members of the public. Option C was a popular choice for
some candidates, but those who chose this option probably confused the determination of the rate of interest
with decisions about the level of spending.

For Question 20, the correct answer was option D. Average revenue is the same thing as the price. It rose
from $10 to $15. Total revenue is the average revenue multiplied by the number of units sold. This also
increased from $2000 to $2250.

The correct answer for Question 22 was option A. Total fixed costs are constant in the short run. Average
fixed cost is obtained by dividing the figure for total fixed cost by the output produced. Candidates are told
that the firm increases its output. As the output figure increases, the average fixed cost must, therefore,
decrease.
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General Certificate of Education Ordinary Level
2281 Economics June 2011
Principal Examiner Report for Teachers
2011
ECONOMICS


Paper 2281/12
Multiple Choice


Question
Number
Key
Question
Number
Key
1 A 21 D
2 D 22 D
3 A 23 C
4 C 24 C
5 C 25 D

6 A 26 B
7 B 27 B
8 C 28 D
9 A 29 A
10 B 30 B

11 A 31 D
12 D 32 B
13 B 33 B
14 D 34 C
15 D 35 D

16 D 36 C
17 C 37 A
18 D 38 B
19 A 39 B
20 A 40 D


The mean mark was 27.7 which is a commendable result on the part of the candidates.

The questions for which most candidates selected the correct answer were 3, 4, 5, 14, 15, 19, 21, 22, 24, 34
and 37. These questions were answered correctly by 80% or more of the candidates. They covered
different parts of the syllabus and were set to test different skills.

The questions for which the fewest candidates selected the correct answer were 8, 13 and 20. These
questions were answered correctly by 40% or fewer candidates.

Question 8 asked candidates to select an example of a market failure. The correct answer was option C.
Option B was a popular choice for some candidates, but the existence of scarcity does not indicate that the
market has not worked. Price, demand and output produced can be determined by a market even though a
particular good is scarce. The general existence of scarcity is part of the basic economic problem and is not
an indication of a market failure.
3
General Certificate of Education Ordinary Level
2281 Economics June 2011
Principal Examiner Report for Teachers
2011
Question 13 asked candidates about banks. The correct answer was option B. Commercial banks do not
hold the financial accounts of the government, central banks do not determine government spending policies
nor do they supply foreign currency directly to members of the public. Option C was a popular choice for
some candidates, but those who chose this option probably confused the determination of the rate of interest
with decisions about the level of spending.

The correct answer for Question 20 was option A. Total fixed costs are constant in the short run. Average
fixed cost is obtained by dividing the figure for total fixed cost by the output produced. Candidates are told
that the firm increases its output. As the output figure increases, the average fixed cost must, therefore,
decrease.
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General Certificate of Education Ordinary Level
2281 Economics June 2011
Principal Examiner Report for Teachers
2011
ECONOMICS


Paper 2281/21
Structured Questions


Key messages

For Question 1 in Section A, which is the compulsory question, it is very important that candidates read all
the data provided before they start writing and use it where appropriate in their answers. Such an approach
was essential in order to gain full marks in Questions 1(b) and 1(d).

For Section B, candidates should read through all questions on the paper before deciding which three
questions they may be best at answering. In particular, candidates should look at each last sub-question
since this carries the most marks. Some candidates were able to give good answers to parts (a) and (b) and
then did less well with parts (c) and (d).

Candidates should also take account of the number of marks (shown in brackets after the question) in
determining the length of their answers. For example, on Question 3 some candidates wrote longer
answers on part (a), which carried 4 marks, than on part (d), which carried 8 marks.

Where possible, candidates should avoid listing or excessive use of bullet points since this prevents a full
explanation or discussion being given. Very short comments mean that the development of the explanation
or discussion is missing, which may significantly reduce the marks that can be awarded on questions that
ask for a discussion.

Reference to local examples to illustrate answers is welcomed as it shows a candidates ability to apply
economic concepts to their local environment.


General comments

It was encouraging to see that there were very few rubric errors and that most candidates were able to
complete four questions.

A number of economic terms and concepts were well understood by most candidates. This included, for
example, opportunity cost (Question 1), monopoly (Question 4), inflation and unemployment (Question 5)
and exchange rates (Question 7). However, the concepts of market failure (Question 2), perfect
competition (Question 4) and the current account (Question 7) were often not well understood.

As reported in previous years, candidates need to look very carefully at the command words at the beginning
of questions in order to determine the level of response that is required. For example, identify means that a
simple answer is required without explanation as it only requires a candidate to show their knowledge or
select from data provided, whereas explain requires a candidate to show their understanding of a term or
topic and perhaps include an example from their own experience. Where a question requires a discussion,
candidates need to ensure that there is a balanced discussion with a conclusion at the end. This is difficult
to achieve if answers are in the form of a list of bullet points that are not connected.

Finally, there is no need for candidates to copy out the questions before answering them, although it is
important to record the part of the question being answered in the margin. Writing out the question uses up
time that candidates could usefully spend in preparing and writing an answer, thereby potentially achieving
better marks.
5
General Certificate of Education Ordinary Level
2281 Economics June 2011
Principal Examiner Report for Teachers
2011
Comments on specific questions

Question 1

(a) Most candidates correctly identified taxation both direct and indirect. Aid was also a common
choice but a few candidates did not identify a second source or gave incorrect answers, such as
revenue from exports or nationalised industries (rather than profits).

(b) Candidates gained full marks for giving a clear definition of opportunity cost and identifying that in
spending money on preparing the city for the Olympic Games, an opportunity had been foregone to
address the slum areas, reducing the high crime rate or addressing poverty. Most candidates gave
the correct examples, although a few referred to education and housing which were not in the data
provided but were relevant for Rio de Janeiro. Most candidates also gave a clear definition of
opportunity cost. Those who did not usually had some understanding of the alternative use of the
funding.

(c) This question required an explanation backed up by a diagram. Many candidates drew a diagram
first and then commented upon the diagram, which often meant that a full explanation was not
given so they did not get full marks. The diagram, which many candidates drew and labelled
correctly, was one which showed a shift in the demand curve to the right, with a new equilibrium
showing a higher wage and higher number of employed workers. However, often the diagrams
were labelled incorrectly with output rather than workers or included a shift in the supply curve to
the right and a new equilibrium which may have had a higher or lower wage. Most candidates
described the shift in demand curve and the new equilibrium point and correctly identified that
increased demand led to higher wages; however, they then needed to state that it also led to
increased employment in order to gain all 6 marks.

(d) The data in the stem provided a significant amount of information for candidates and it was good to
see that the majority of candidates used it well to answer this part of the question. Very good
answers came to an overall conclusion on whether or not Rio de Janeiro would benefit. Nearly all
candidates were able to identify correctly what were the advantages and what were the
disadvantages and give a balanced argument. However, some candidates needed to distinguish
between the impact on the City and the impact for Brazil as a whole, for example by referring to the
impact on inflation in the country or the balance of payments. The strongest answers came from
candidates who were able to select relevant information, rather than simply lifting information from
the stem without providing sufficient discussion, explain why they were advantages or
disadvantages and come to a conclusion. One-sided answers without a conclusion gained fewer
marks.

Question 2

(a) Candidates were required to write about the advantages of a market system. Good answers
referred to how the price mechanism worked, the benefits for consumers, how profit acted as an
incentive for producers and how competition ensured efficiency and low prices. Answers which
addressed only some of these points gained fewer marks.

(b) Good answers referred to the existence of monopolies and the over-consumption and under-
consumption of particular goods and services. Many answers referred to merit, demerit and public
goods, although these terms are not in the syllabus so it was not necessary to use them in order to
gain full marks, and there were some excellent answers explaining why market failure resulted in
external costs. Some candidates related market failure to individual businesses making a loss,
which is incorrect.

(c) Good answers made reference to controlling monopolies, provision of subsidies, higher taxation on
goods such as alcohol and tobacco as well as the provision of certain goods by the government, for
example education and health. Some candidates who were unclear about the causes of market
failure in part (b) were still able to provide reasonable answers on why the government might
intervene in a market.
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General Certificate of Education Ordinary Level
2281 Economics June 2011
Principal Examiner Report for Teachers
2011
Question 3

(a) This part of the question offered an opportunity for candidates to explain the role of commercial
banks and was a test of knowledge and understanding. Good answers related to commercial
banks accepting deposits, offering loans, enabling customers to receive and make payments, and
offering sound financial advice. Some candidates confused commercial banks with central banks
and others did not provide an explanation, either listing activities carried out by commercial banks
or giving a very brief description in a few sentences.

(b) This was also a straightforward test of knowledge and understanding of the four main functions of
money. The majority of candidates did well and were able to describe at least three of the
functions. This was an improvement upon recent exams. Some candidates need to understand
that describe means more than just listing a function. They also need to be clear about the
difference in meaning between functions and characteristics of money as a minority wrote about
the latter, such as portability and durability, which could not be rewarded.

(c) Good answers explained that earnings were low when an individual starts their first job and then
rose through experience, age and promotion, before falling on retirement. A few candidates also
commented that the highest earnings tended to be just before retirement. However, answers which
referred to factors affecting earnings for a particular job or events such as recession,
unemployment, changes in demand for the job and inflation gained very few marks.

(d) Good answers were those that gave a balanced discussion on the relative importance of wages
and other factors in determining the choice of occupation. The best answers were those which
explained why wages were also important and gave a conclusion. Many candidates only made a
brief reference to wages and most of their answer related to other factors, such as working
conditions, location and fringe benefits. These answers were not balanced and therefore could not
achieve high marks.

Question 4

(a) Most candidates had a good understanding of the key features of a sole proprietor, although not all
of them fully understood what unlimited liability meant.

(b) Many candidates were clear about the advantages of turning a sole proprietor into a partnership.
Comments on sharing responsibility for the business and financing, and on the number of partners
that could be in a partnership were very common. However, fewer candidates were able to explain
why a lawyer would want to do so, although some made correct reference to specialism in certain
aspects of the law.

(c) This should have been a relatively straightforward description. Where candidates clearly
understood the characteristics of perfect competition, full marks were obtained. Candidates who
were unaware of the theoretical model wrote instead about competitive markets and often
described the characteristics of oligopoly with a few firms competing through non-price competition
for market share.

(d) Candidates who were unclear about perfect competition were at a disadvantage in making a
comparison with a monopoly. Nonetheless, most candidates showed a reasonable understanding
of monopoly and therefore were able to gain a few marks, though this often meant that these
answers were one-sided. It is also important to note the key words of always and preferred in the
question, which sought a discussion of the advantages of these two economic models and a
judgement at the end of the discussion. Some candidates misinterpreted the question and
included discussion of the disadvantages as well, which was not required.

Question 5

(a) Most answers gave a very clear definition of inflation and gained full marks. Those who defined it
in terms of a fall in the value of money could not gain full credit.

(b) It was good to see that most candidates were clear about demand-pull and cost-push inflation and
quite a few also made a correct reference to imported inflation. This was generally well done.

7
General Certificate of Education Ordinary Level
2281 Economics June 2011
Principal Examiner Report for Teachers
2011
(c) Most candidates were able to identify and explain two types of unemployment and gain full marks.
Those who did not often confused structural with technological unemployment.

(d) This part of the question was challenging for most candidates in that the answer required an
explanation of why both inflation and unemployment were problems followed by a conclusion as to
which was the greater problem. Many candidates made a good attempt and identified several
issues for each. A few gave a one-sided answer. There was no right answer as to which was the
greater problem and marks were awarded on the basis of the discussion which led to a conclusion.
Some candidates stated that they were both major problems. Others thought that unemployment
was the bigger problem since it affected some people significantly and took longer to resolve.
Some candidates decided that inflation was the bigger problem since it affected everybody.
Overall, the responses were most encouraging to see.

Question 6

(a) Few candidates scored well on this part of the question because their answers lacked sufficient
depth. The age section was generally answered more satisfactorily than the other two, chiefly
because of the focus on birth and death rates. Occupational structure was only understood by a
few, although most candidates would have known that as countries develop they develop
secondary and then tertiary sectors. Equally, many candidates seemed to be unfamiliar with the
term geographical structure. Answers needed to relate to the drift in population away from rural
areas to more urban areas where the secondary and tertiary jobs are to be found.

(b) Answers to this part of the question needed to be focused on a region and to provide reasons why
there were differences in living standards between regions within a country, as stated in the
syllabus. References were often made to higher income and wealth in some areas without
explaining why this would be (for example, natural resources, local infrastructure farming versus
services sectors). Overall too many answers lacked specific details.

(c) Good answers to this part of the question would have addressed the regional differences in living
standards identified in part (b). If the response to part (b) did not do this, answers were likely to be
limited to national rather than regional policies such as, subsidising industry, addressing poverty,
and improving education and training, rather than those that would have a regional effect such as,
improving local infrastructure and attracting new investment into the area. Only a few candidates
were able to state which were the most effective policies and so obtain full marks.

Question 7

(a) Most candidates were able to identify demand and supply for a currency as being the two most
likely causes of a change in a countrys exchange rate.

(b) The majority of answers identified that a fall in a countrys exchange rate would make exports
cheaper and imports more expensive. However, not many went on to explain that this would have
a positive effect on production in the country through greater exports and import substitution.
Relatively few made reference to the fact that the overall impact depended on the price elasticity of
demand or that if imports were used in making the products to be exported this would increase
costs and negatively affect exports.

(c) This should have been a relatively easy 4 marks for most candidates since it only required
knowledge and understanding of the current account. Many candidates gained all 4 marks by
referring to trade in goods and services, although full marks could also have been obtained by
reference to income and transfers. It was clear from other answers that candidates needed to
develop their understanding of the current account, with several confusing it with a current account
at a bank.

(d) This was generally not answered well and some responses seemed incomplete, which might partly
have been due to its being the last question part the candidates answered. Some candidates were
able to explain that if the improvement came from an increase in exports it would lead to additional
production and therefore an increase in employment. They then needed to relate it to an
improvement in services such as tourism, for example, which would also have impacted favourably
on employment. Very good answers would have included reference to circumstances where an
improvement would have no impact upon employment, such as investment income and wages
earnt by residents working abroad.
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General Certificate of Education Ordinary Level
2281 Economics June 2011
Principal Examiner Report for Teachers
2011
ECONOMICS


Paper 2281/22
Structured Questions


Key messages

Candidates need to focus on the command or directive word that is being used in each question. For
example, some questions required candidates to identify (as in Question 1(c) and Question 2(c)) whereas
other questions required candidates to discuss (as in Question 3(c) and Question 4(d)). These words give
an indication of what candidates are required to do and this is reflected in the number of marks allocated to
these questions.

Candidates must read the rubric carefully. On this paper they are required to answer Question 1 in Section
A and then three questions from Section B. A few candidates answered all seven questions, which clearly
reduced the time that they could allocate to each question.


General comments

It was pleasing to see many very good answers from a number of candidates who successfully demonstrated
a sound knowledge and understanding of economics and a mature ability to describe, explain and discuss a
number of key economic concepts and issues.

Where candidates are required to use a demand and supply diagram (as in Question 2 (b)), they should
ensure that these are drawn as neatly and as carefully as possible and that all parts of the diagram are
labelled correctly.


Comments on specific questions

Question 1

(a) Many candidates were able to explain correctly that an entrepreneur is somebody who takes
decisions and who takes a risk in organising the factors of production being employed.

(b) There were some good answers to this part of the question, with candidates demonstrating an
understanding of what a stock exchange was and the role it could play in a countrys economy,
such as providing a facility for firms to raise capital in order to expand and increase production.

(c) The majority of candidates were able to identify correctly two possible reasons why the supply of
mobile (cell) phones might increase. These included a decrease in the costs of production,
improvements in technology, the provision of a financial incentive by a government or in response
to an increase in the demand for them.

(d) In this part of the question, candidates were required to explain two financial incentives, other than
subsidies, which a government could offer multi-national companies to locate in its country. Good
examples included a tax holiday, a lower rate of corporation tax on profits or the provision of
infrastructure. Candidates must ensure that they read the questions carefully, as those who
explained non-financial incentives or considered subsidies could not gain credit.

(e) There were many extremely good responses to this final part of the question, with candidates
discussing both the potential advantages of a multi-national company locating in a country, such as
in relation to the creation of employment opportunities, and the possible disadvantages, such as
the repatriation of some of the profits back to the home country.

9
General Certificate of Education Ordinary Level
2281 Economics June 2011
Principal Examiner Report for Teachers
2011
Question 2

(a) The majority of candidates demonstrated a sound knowledge and understanding of what was
meant by a subsidy, stressing that it was a form of payment to a producer, such as by a
government, to help reduce the cost of production.

(b) Most candidates recognised that a subsidy would cause a shift of the supply curve to the right,
leading to a fall in equilibrium price and a rise in equilibrium quantity. Candidates needed to ensure
that the demand and supply diagram was correctly drawn and clearly labelled, especially in relation
to the change in the equilibrium positions.

(c) The vast majority of candidates answered this question very well, correctly identifying the three
questions faced by every type of economic system.

(d) In this final part of the question, candidates were required to discuss why virtually every country
today had a mixed economy. Candidates demonstrated a good understanding of some of the
weaknesses of a market economy, such as the under-consumption of some goods and the over-
consumption of others, giving rise to the need for different forms of government intervention.

Question 3

(a) There were some very good answers to this question, with candidates describing a variety of
different factors that could affect the demand for a product, such as the price of the product, the
prices of substitutes and/or complements, changes in income and the impact of an advertising
campaign.

(b) Many candidates were able to explain that price elasticity of demand is the percentage change in
the quantity demanded of a product divided by the percentage change in the price of the product.
They then went on to develop the explanation through a consideration of the various situations
from perfectly inelastic to perfectly elastic. A number of candidates made good use of appropriate
diagrams of demand curves to support their explanation.

(c) Candidates generally recognised the link between price elasticity of demand and revenue. To gain
full credit, candidates needed to focus on magazines and on how the knowledge of price elasticity
of demand could be used specifically by a firm producing and selling magazines.

Question 4

(a) This part of the question was answered very well by many candidates, who were able to describe
the factors, other than possible membership of a trade union, which could affect an individuals
choice of occupation. Candidates described factors such as remuneration, location, working
conditions, fringe benefits and promotion prospects. Candidates who wrote about possible
membership of a trade union could not gain credit for this, as the question instructed them to
consider factors other than this.

(b) The majority of candidates recognised that it could be true that some individuals might be paid
more as they got older, recognising their greater experience, but that it would not necessarily
always be true.

(c) There were some good answers to this part of the question, with candidates offering a useful
explanation of the possible benefits that an individual might receive from being a member of a trade
union. These included the process of collective bargaining to increase the pay of union members.

(d) Many candidates offered a balanced discussion of whether trade unions always had a harmful
effect on the wider economy. They were able to contrast the potential benefits of trade unions,
such as giving workers a stronger voice in disputes with employers, with the potential
disadvantages, such as the problems that firms could face if there was industrial action by trade
unions.





10
General Certificate of Education Ordinary Level
2281 Economics June 2011
Principal Examiner Report for Teachers
2011
Question 5

(a) In this first part of the question, candidates were required to describe the disadvantages of a sole
proprietor business. These included the problems of unlimited liability and the difficulties that could
arise in trying to raise funds to finance the expansion of the business. Candidates who offered a
list-like answer, which did not really develop the description of the disadvantages, could gain no
more than two marks.

(b) Many candidates demonstrated a sound understanding of the differences between a private limited
company and a public limited company, especially in terms of issuing shares. Most candidates
recognised that a key reason for a private limited company wishing to become a public limited
company was to be able to raise more finance by quoting their shares on a countrys stock
exchange.

(c) There were some good answers to this part of the question, with candidates explaining how firms
could grow in size through both internal growth, such as by gaining an increased share of a market,
and external growth, such as through a merger or takeover. Many candidates demonstrated a very
thorough understanding of the different forms of integration that can exist in an economy.

(d) In this part of the question, candidates were required to discuss whether some firms might benefit
from reducing their size. Many of the answers were extremely well balanced. Candidates
considered the possible advantages of this, especially if a firm was experiencing diseconomies of
scale, and the possible disadvantages, in that if firms became smaller they would be less able to
benefit from economies of scale and the consequent cost savings that would otherwise have been
possible.

Question 6

(a) The majority of candidates were able to explain successfully what was meant by inflation in terms
of a persistent or sustained increase in the general level of prices in an economy over a given
period of time.

(b) Many candidates were able to offer a thorough description of how a retail or consumer price index
was constructed, demonstrating a sound knowledge and understanding of the key features in terms
of a basket of goods and services, the selection of a base year and the allocation of weights to the
particular products in the basket to reflect their relative importance.

(c) Most candidates were able to offer a clear explanation of demand-pull inflation in terms of a
situation where the level of aggregate demand in an economy was in excess of aggregate supply.
Many candidates used an appropriate diagram to good effect to support the explanation.

(d) Most candidates were able to demonstrate an understanding of the possible disadvantages of a
high rate of inflation, such as a fall in the real value or purchasing power of a nominal sum of
money. To gain a mark of more than four, it was also necessary to indicate an understanding that
inflation could be beneficial in certain respects, such as higher profits for firms (assuming that the
increase in prices was greater than the increase in costs). It was pleasing to see some candidates
discuss exactly what might be meant by a high rate of inflation.

Question 7

(a) There were some good answers to the first part of the question where candidates were required to
describe how living standards in a country could be measured. Many candidates answered in
terms of changes in real GDP per capita, but it was pleasing to note the number of candidates who
also referred to changes in the Human Development Index and to other possible criteria relating to
the quality of life, such as the quality of water available in an economy.

(b) In this part of the question, candidates were required to explain two reasons why the measurement
of living standards in a country might not always be accurate. Reasons included the extent of the
hidden or underground economy and the difficulties involved in obtaining accurate and up-to-date
information in some countries.
11
General Certificate of Education Ordinary Level
2281 Economics June 2011
Principal Examiner Report for Teachers
2011
(c) There were some good answers to this final part of the question. Candidates were able to discuss
a number of possible actions which a government might take to reduce poverty, such as the
introduction of a minimum wage, the use of fiscal and/or monetary policy to expand demand and,
therefore, reduce unemployment, encouragement of family planning and a move away from the
primary to the secondary and tertiary sectors. Candidates needed to focus the discussion
specifically on the reduction of poverty in order to gain a mark of more than five.
12